No, not the Dow Jones Industrial Average. Or the S&P 500. They’re down sharply, but are actually only a couple percentages off their all-time highs.

But what about the Nigerian Stock Exchange All Share Index? Take a look — it’s down 21.8 percent in 2014 already, including 8.4 percent in just the past 10 days!

Or how about the iShares MSCI Mexico Capped ETF (EWW)?

It’s the benchmark ETF here for the Mexican stock market and it’s falling off the table! It has plunged 6.7 percent in just the last week!

Then there’s the iShares Malaysia ETF (EWM). Again, this is the benchmark U.S. ETF for that country’s market and you can see it has collapsed 16.9 percent just since the summer … leaving it at the lowest level since the summer of 2012.

I could show you a chart of Russia’s currency, the ruble, and it would tell the same sad story. It has now plunged more than 44 percent in value this year! Or I could show you a chart of how much it costs to ensure Venezuelan bonds against default in the credit default swap market. You’d see that it now costs more to buy default protection than it did even at the depths of the 2009 global credit crisis.

What’s the common thread?

Falling oil prices, falling commodity prices in general, and the rising dollar — all of which are causing the flight of capital OUT of emerging markets and IN to ours.

Oh and for good measure, Greece’s stock market just crashed the most since the 1987 global market wipeout. The catalyst? Fears a new government will come to power in an impending election, and that will lead to the country pulling out of the euro currency union.

What does the price of a share of stock in Abuja … or Mexico City … or Kuala Lumpur … or Athens … have to do with the Dow? So far, not much. While energy stocks here have been falling along with those markets, as I mentioned, the broader averages haven’t gotten hit for much.

But with junk bonds selling off aggressively now in sympathy with crude, and the list of sagging global markets getting longer, is that poised to change soon? It’s certainly a potential risk.

“What does the price of a share of stock in Abuja have to do with the Dow?”

We’ve benefitted from the Global Money Tsunami so far, because our markets and our economy have attracted money fleeing riskier locales. But at some point, the damage could get bad enough that it spurs contagion fears. Then it’s a threat to almost every asset except for cash.

I don’t think we’re there yet. But you should at least be aware of what’s going on in far-flung markets — just in case some of that turmoil washes up here!

So with that in mind, what are your thoughts on emerging markets? Is the recent carnage overseas justified, and do you see it getting even worse? Or are we at a point where some kind of policy response — whether from fiscal or monetary authorities or heck, even OPEC — is about to occur? Are you raising cash as a buffer against potential turmoil, or just plowing straight ahead? Point your mouse to the Money and Markets website and give me a heads up!

Our Readers Speak

Is the sharp drop in oil prices good? Bad? The best thing to happen to the U.S. economy … or the worst? Many of you sounded off on those issues in response to my most recent column.

Reader Ken said: “Clearly our ‘friends’ the Saudis are trying to collapse the U.S. self-sufficient energy effort. The U.S. should slap a tariff tax on all oil imported from Saudi Arabia or any other country that attempts to undercut our homegrown oil business!

“We need to be independent to be safe. Yes — oil start ups with no skin in the game should merge or be bought out to reduce the debt that is piling up. The remainder should be protected as described above.”

On the other hand, Reader Paul said: “Are you kidding me? Since when is $60 a barrel oil considered so outrageously under priced that it is time to put tariffs on it? Is everybody so brainwashed by the oil companies that we now think oil is cheap at 60 bucks a barrel?

“So maybe the oil companies may not be making more money than every other company in the entire world anymore, but now may be the 2nd or 3rd most profitable. Well boo hoo … I own a very small business and when it costs me a hundred dollars to fill the tank on my work van, that is a hundred dollars that I don’t have to buy other things my business needs or to buy health insurance or even groceries.”

But too much of a “good” thing may be bad, according to Reader Joseph. He said: “Cheap oil sounds good. But when it reaches too low, many of the small companies will collapse and the bank loans will cause the companies to shut down.

“More people out of work and the oil supply goes down and the price back up. Maybe not to $100, but surely to the $85 – $95 range. We need a balance for the price of gas and the production of oil.”

Reader OM had a similar take, saying: “Two-edged sword here. Cheap energy is great for GDP through consumer spending and great for energy-intensive industries which are already coming back to the U.S. But it’s not so good for banks and bond holders that have billions on the line in companies who are feeling the squeeze.”

Those are all great perspectives, and I’m glad you shared them. Personally I think the U.S. has become much more of an energy producer over the past few years rather than just an energy consumer, as we were for much of the 1990s and 2000s.

Some in government may think we’re just sticking it to the Russians, the Venezuelans, and other countries that don’t like us very much by doing nothing as prices collapse. But we’re also shooting ourselves in the foot by not using diplomatic or other channels to try to stabilize things.

One reason I’ve been combing through the wreckage in the energy sector: I believe the energy giants with stronger balance sheets are likely to start swooping in and buying up cheap stocks, cheap acreage, and cheap oil and gas in the ground.

Sure enough, reports out of Spain suggest energy giant Repsol SA is about to buy Talisman Energy (TLM, Weiss Ratings: C-) of Canada and there are reportedly some other bidders circling as well.

Wall Street banks offering favorable post-IPO research from analysts in exchange for being awarded the underwriting business? Perish the thought! Oh wait, that’s just what the Financial Industry Regulatory Authority (FINRA) accused 10 securities firms of doing. They were also forced to cough up $43.5 million due to questionable practices tied to a Toys “R” US IPO in 2010 (which ultimately didn’t happen).

The House passed a $1.1 trillion funding bill late last evening, ensuring that there wouldn’t be a last-minute government shutdown. The tension stemmed from objections to multiple provisions among the liberal wing of the Democratic Party.

Massive winter storms on the East Coast and Upstate New York grabbed headlines a couple weeks ago. Now it’s the West Coast’s turn. California is getting battered by wind, rain, and snow, with reports of hurricane force winds, widespread power outages, flooding, and mudslides coming in.

Looking to comment on any of these headlines? Or any others that caught your attention today? Then make sure you use the website as your outlet.

Until next time,

Mike Larson

Mike Larson graduated from Boston University with a B.S. degree in Journalism and a B.A. degree in English in 1998, and went to work for Bankrate.com. There, he learned the mortgage and interest rates markets inside and out. Mike then joined Weiss Research in 2001. He is the editor of Safe Money Report. He is often quoted by the Washington Post, Reuters, Dow Jones Newswires, Orlando Sentinel, Palm Beach Post and Sun-Sentinel, and he has appeared on CNN, Bloomberg Television and CNBC.

{64 comments }

AllenFriday, December 12, 2014 at 6:08 pm

A lot of people are saying that sustained low oil prices will put companies out of business and their employees out of work. Maybe so. Seems like it will also have the effect of allowing businesses that benefit from low gas prices to expand and hire more people as well.

JohnFriday, December 12, 2014 at 9:54 pm

You are right (on the second part). Lower priced oil will stimulate business in every sector (other than oil) in the entire economy – increasing profits, resulting in lower prices and greater sales, and creating jobs at the same time. And all businesses benefit from lower cost energy, and I’m not just talking about products that use petroleum based materials. About half of the energy used in the US is used for transportation – so the cost of energy works its way into everything we buy – almost all of which has to be moved around.

KentFriday, December 12, 2014 at 6:09 pm

Cheap oil might be good for consumers but even if people spend 100% of the savings, won’t that leave GDP unchanged as money is just spent on something else (goodies, not oil)? It seems like rather than serve as a sort of “stimulus,” cheap oil is a little like taking a high powered fan on a sailboat and thinking I can blow the sail to make the boat go…..

JohnFriday, December 12, 2014 at 9:48 pm

But that there is more money in peoples pockets for other spending IS THE POINT. It raises the standard of living and increases demand for all sorts of products which in turn aids the economy. And yes – it will stimulate the economy, but the inflation safe way – without increasing the supply of money.

As for GDP – remember that imports don’t count in GDP, but exports do. Once the US starts to export oil (coming in a few years) energy production will add to our GDP, not just transfer $ from one part of the economy to another. Whether people spend (economic growth) or save (investment growth) more money available is always better.

Alan Orange Park, FLFriday, December 12, 2014 at 6:14 pm

I had to comment on this oil thing, and Reader Paul is absolutely right, when did high priced oil become low priced? The people of the USA are as gullable and/or uninformed as any in the world. Just look at our politics. Oil is NOT from dead trees and animals, that has been proven over and over again. Educate yourselves people. For an example of fossil oil, [yea right!] the deepest fossil found was less that 1000 feet below the surface can anyone tell me how deep they’re drilling to find oil?
Just one example http://www.rense.com/general63/refil.htm there is FAR more.

Frank EllisFriday, December 12, 2014 at 6:16 pm

Econ 101 folks. Necessary or “hot” products grow in demand and prices go up. Then, naturally, more of the product is produced, and the market responds and prices begin to slip. At some point the weaker producers go out of business thereby reducing the supply, and then prices begin to go up again. It is the natural cycle of economic life. The overall economy, demand, influences the cycles too, and that is having an effect on worldwide oil prices today along with the increase in value of the dollar.

H. Craig BradleyFriday, December 12, 2014 at 6:18 pm

AVOID THE CROWDS (PANICS) AND PICK YOUR PRICE

All the numerous conflicts, wars, and riots ( Ferguson, MO ), as well as plunging foreign markets, oil, and currencies, plus a stronger U.S. dollar, points to much more volatility to come. However, chaos can bring opportunities with it, as well. So, find some high quality stocks you want to buy and hold in beat down sectors ( energy) and put in a few low-ball limit orders on some of them that are below their current price/share.

Sometimes markets ( traders) panic and sent prices down -4% in a day or an hour. When they do, your good ’til cancelled limit order is triggered and you get your price rather than the other way around. If it pays a dividend, you get a better yield by paying less per share for it. This can insulate you from potential overseas problems that could adversely impact the high-flying U.S. Stock Markets at some point.

So, don’t wait for the markets to panic to decide what to do. Plan ahead and stay calm, cool, and collected while maintaining a long term view ( 5 years out ). Don’t try to time the market or beat the professionals in day trading. You can not ever win doing just what everybody else is doing or saying.

JohnJFriday, December 12, 2014 at 6:30 pm

Some years ago the media and most politicians were doing all they could to get major corporations to outsource everything that they could. It was an adjunct to the fed’s economic aid to various countries. The huddled masses got jobs, and were basically happy over their jobs. The corporations learned how to make money in doing this outsourcing. The financial crash of 2009 changed the politicians and media, as they screamed for a discontinuation of all the outsourcing. All of the the outsourcing has not stopped as of yet, but there has been a pull back. Now the fragile economies of emerging markets have lost an element of their strength. To make matters worse, the large corporations still involved over seas, are pressuring those they work with to meet US safety standards, pollution directives, in response to environmental activists; and their partners over seas are trying desperately to move to partnering with Russia and China before they go bankrupt. We are getting our outsourcing back home. but now we do not have any where to really sell. You might say with the old expression, “The chickens have come home to roost.”

Al McNalTuesday, December 16, 2014 at 10:10 am

You have a good memory. Most forget about these mega trends and only think of the latest jobs report which “shows” the US making headway.

StevenFriday, December 12, 2014 at 6:34 pm

Speaking of the weather, that is why California produce is so good tasting. First it is ‘battered’ by the rain and then it is ‘deep-fried’ by the sun. The weather has ‘rained’ on the parade of liberal politicians whose policies have left America’s Truck Garden (the San Joaquin Valley) a dust bowl in favor of an environmental priority that ‘Smelt’ up the Sacramento Delta. I know that there are not a few farmers who are on their knees in gratitude for the rainfall that has been received thus far with the promise of more in the coming weeks.
California weather is cyclical and not a product of ‘global warming’ as some say, and we have the tree ring samples from 1,000 year old trees to prove it. What is needed is a more comprehensive water policy that has public service and not politics (even the green kind) as the guiding ethos. Palm Springs does quite well on 5 inches a year because nothing is wasted. The San Gabriel Valley and Inland Empire have been improving their infrastructure. It is now the State’s turn

mikeFriday, December 12, 2014 at 10:11 pm

America’s Truck Garden? DUDE! What are you smoking? TRUCK GARDEN? The “Central Valley” is owned lock-stock-and-barrel by massive agri-business interests whose ONLY interest in maximizing profits with the long-term consequences to the land be damned. Water tables have dropped precipitously as over-pumping to support idiotic water-guzzling crops expands (RICE in Colusa and Glenn counties; almonds across the valley that consume 4 gals PER ALMOND). Massive cattle and pig stockyards where cattle fester in their own fæces and excrement, and pollute waterways with toxic drainage. Poverty rates in Tulare and Fresno counties (among others) are approaching Mississippi levels and air pollution is the worst in the state.

Los Valles de Sacramento and San Joaquín (“The Central Valley”) is far from the bucolic portrait of a “truck garden” that you paint. It has NOTHING to do with politics and EVERYTHING to do with a completely unsustainable and wasteful agri-business rape of the land.

FredFriday, December 12, 2014 at 6:39 pm

Oil below $10 is not a real big deal, historically. It has happened before….and not that long ago. Yes, some companies will go under. And some companies will benefit significantly. But in the world of capitalism, that is natural. There is NO alternative, contrary to the beliefs of our socialist politicians. In Jan-Feb, 1999….(yes that was only 15 years ago)……oil was $9 and change a barrel. And it was not far from that price for a few years.

The price goes up….and the price goes down. Now there are people that believe off-the-wall theories, i.e., “the peak oil theory BS” stating that we are in great danger of producing our last barrel of oil within the next few decades. Every year, these folks have to alter their bell curve charts because of all the new discoveries and technology. BTW, the real production charts are not bell curve for as far as WE can see. They are charts showing a steady increase in world production.

The world markets? Yes, they are getting messy. I think that this is just a small…..indeed very small….. portent of the coming financial devastation. Some, like Larry, have said it is due to deflation. I think he is 100% correct in that observation. However, he has indicated, as best I understand his latest message, that we in the USA will somehow escape the coming debacle. Methinks not.

Michael5152Saturday, December 13, 2014 at 1:59 am

As a South African I have to agree with you. There will be very few who will escape the coming devastation. Our rand has lost (8%) of its value against the US$. South Africa is a commodity exporting country.and we are being hammered because of the crisis.

Perhaps gold will start to climb again once the perfect financial storm hits world markets and Ravi Batra (The Great Depression of 1990) will be proved correct

KentSaturday, December 13, 2014 at 5:37 pm

It will be contained. Not!

anthony gFriday, December 12, 2014 at 7:05 pm

The markets will clear only after government intervention ends. The deflationary forces are only trying to cleanse the system of unproductive activities. The central bankers only want to inflate to support the crony capitalism.

anthony gFriday, December 12, 2014 at 7:05 pm

The markets will clear only after government intervention ends. The deflationary forces are only trying to cleanse the system of unproductive activities. The central bankers only want to inflate to support the crony capitalism.

HYMNFriday, December 12, 2014 at 7:06 pm

Shale oil has never turned a profit certainly not at these prices and not at 100$ a barrel. Shale isn’t really for consuming, it’s a political ploy. A place for Haliburton to throw it’s waste products, cheaply, without the nosey EPA. A place to waste some of the little fresh water we have left so the bottled water and filtration plant guys can make a fortune when the levels of fresh water and useable aquifers are at critical. The “oil” itself is garbage, costing more to get out of the ground and refine than it’s worth,even at 100$ a barrel

Alan Orange Park, FLFriday, December 12, 2014 at 7:44 pm

HYMN your numbers seem to be a bit off, they’re producing oil at $70 a barrell not $100 and refining is the same as deep well drilling. I don’t know where you got your numbers from I’d be happy to find out and look at them myself. I own stock in 4 oil producers that are old well pumping and one fracking. Please supply the source of your numbers and broad statement as to profitablitiy of fracking.

PeterWFriday, December 12, 2014 at 7:12 pm

I think the four horseman of the Apocalypse are beginning to ride. Manning, Julian Assange, Snowden and Obama. The Rich and Powerful have earned the events of these four horseman.

Each were so outraged that they had to spill the beans. Obama was prevented from accomplishing his mission, of ending the War in Iraq, Iran and shutting down Gitmo, thus he could see his place in history be non existent

The horseman ride in the Weak areas first, but they will cause World reset. The Horsemen could not ride without the opening of Pandora’s Box.

Taking on Russia opened Pandora’s box as I have written before many times before.. Russia caused the defeat of Napoleon and Hitler. He who opens this box cannot close it.

People will win in the long run.

People of the World have had enough.

Chuck BurtonFriday, December 12, 2014 at 7:36 pm

One thing that hasn’t been considered in the oil crash, is that it is highly Deflationary! Watch for other prices to follow in the New Year, especially in commodities. Also watch for the post holiday layoffs to be much higher than expected. Can the stock markets continue climbing in such an environment? For a short while, possibly, but that may make things even worse when they inevitably fall again. Brad Hoppmann’s commentary this evening about the evil alliance of banks and capitol politicians shows how the big money banks are prepared to profit at everyone else’s expense and get taxpayers and government debtors to foot the bill.

SteveFriday, December 12, 2014 at 8:13 pm

Be interesting to see if some of these struggling countries mentioned in this article have to start “coughing up” their gold in order to bail themselves out. Venezuela – 16th with 368t (global ranking and tonnage), Mexico – 30th and 123t, Greece 32nd and 112t. I wonder also who would be the beneficiary of any gold sales……..IMF perhaps.

philipFriday, December 12, 2014 at 8:20 pm

well now…how interesting and how quickly we Americans forget. Recall when China and others where making huge deals for oil…..bad play you think ? Don’t count them out….or the Saudis…we haven’t kept many a promise to these folks. They are not blind or ignorant. Speculate as you must…good way to get email addresses Mike. Everyone loves to offer an opinion.

JanFriday, December 12, 2014 at 8:35 pm

Clearly out government should start refilling our national oil reserves if there is any room left. This might smooth out the volatility, and rebuilt our reserve supply for the next big wave of oil price increases. No sympathy for Russians or Saudis.

Wayne S.Friday, December 12, 2014 at 8:41 pm

Last night the house passed a $1.1 trillion spending bill for 2015 but they left in the bank bail out provision that can create another bailout provision for banks, investment bankers and hedge funds. Who’s going to bail out the bankers that are heavily invested in junk bond debt to small oil producers this time? Yep, us taxpayers. Banks should not be allowed to invest in junk bonds, derivatives or large credit default swaps with depositor monies.

Chuck BurtonFriday, December 12, 2014 at 9:36 pm

The bill also overturned D.C.’s referendum to allow recreational use of marijuana. Like that will stop the pot-heads that run our government. LOL!

Ron L.Friday, December 12, 2014 at 11:40 pm

To be clear, this provision in the spending bill was demonstrably written by Citi Group lobbyists and slipped into the bill without debate…or anyone willing to stand up and support it. It would eliminate the protection by Dodd-Frank to prohibit taxpayer bailouts to too-big-to-fail banks for massive losses from risky trading practices, as occurred during the 2008 financial crisis. The original reporting by Money & Markets attributing resistance to the bill to some vague “liberal” concerns is–at best–lazy reporting. You do your readers a disservice.

FredSaturday, December 13, 2014 at 8:19 pm

I tend to agree with you…..I am totally opposed to any taxpayer backup of these bankers ala 2008. However, another thing not said was the necessity to allow some access to derivatives for farmers and other businessmen to hedge. Dodd Frank could endanger that with forthcoming regulations. This whole issue has many deep angles.

Al McNalTuesday, December 16, 2014 at 10:18 am

Couldn’t agree more! Banks should be controlled to do what is best for economic stability. Judge risk and loan money based upon that risk. With all these derivatives there isn’t a snowball’s chance in hell of understanding how sound a bank is. Society has no way to judge whether a bank gets to utilize their savings. With the Fed loaning as much as any bank wants to gamble we have no economic stability, no check and balances on our banking system. We just have bailout after bailout.

You can’t have a currency which provides a stable place to store effort when you never stop creating new money.

Paul LairdFriday, December 12, 2014 at 8:43 pm

I think its high time to put the screws to Saudi Arabia, Russia, Venezuela, and others by adding an import tax on there oil. Now with our new found energy supplies, we can do it. Everyone of those countries has been a complete pain in the ass for us for years. They are trying to wreck our oil industry. Russia is about to collapse over these low prices; let it happen. Put Putin in his place once and for all. All these people that think these countries are our friend, are nuts. They are trying to dump the U.S. Time to wise up.

mikeFriday, December 12, 2014 at 10:15 pm

Double your meds and sign up for more channels on cable. Give mom back her computer so she can look up recipes. While you are at it, change your pajamas (mom will wash them for you) and wipe that snot off your chin.

BillFriday, December 12, 2014 at 9:17 pm

“Two-edged sword here. Cheap energy is great for GDP through consumer spending and great for energy-intensive industries which are already coming back to the U.S. But it’s not so good for banks and bond holders that have billions on the line in companies who are feeling the squeeze.”

Cheap energy is good for consumers and producers, but they are the result of economies that are not doing well. Either these economies recover and crude prices recover with them or crude prices stay low and recession spreads. Which side of the sword do you want?

JohnFriday, December 12, 2014 at 9:22 pm

I’m really surprised at the number of claims out there that lower cost oil is bad, or for taxes on oil to “fix that problem”, etc. For starters – there is no such thing as a tax on oil. It’s a tax on the people who buy oil. When you call for a tax on oil you are calling for a tax on yourself. Is that what you want?

Secondly, the new world of lower priced energy is going to be a savior for the worlds suffering economies, both emerging and developed like ours. The ability to power the planet for that much less will have economic benefits everywhere, including more corporate profits and lower product prices at the same time. There will be a higher standard of living and more job creation everywhere. In the most impoverished nations the price of food, their biggest critical cost, will drop and provide huge benefits to their people and economies that are constricted when basic sustenance consumes so much of their income.

And lower cost oil will go a long way towards bailing gov’ts out for their ongoing transgressions with QE – lowering the eventual impact of overall inflation down the road. (We’ll have inflation – just as always – but not as much as we might have had with the heavy doses of money creation we’ve seen lately) And keep in mind that the low cost oil era in the US in the 50’s and 60’s spawned one of the greatest stock market booms time. Investors in every sector will benefit.

But right now looming wars in key parts of the world represent incalculable threats to the global economies. And Europe is now getting rolled again due to fiscal incompetence via overspending at the same time. This spells trouble in Europe, the world’s “other” major consuming market with a population of over 750 million people (or over twice that of the US). Emerging economies that have thrived by exporting goods to the developed world are finding many of those customers out of money – and that’s going to stop the party in emerging markets everywhere.

And the developing markets in Asia (particularly) are also suffering from another problem that they have yet to reckon with – but which is inevitable. The bigger they get, the harder it will be to sustain the high levels of growth they’ve become addicted to. This is a byproduct of their own success – and consequently is inevitable. But the new lower market cost of oil will help those nations out considerably as most of them are large importers of energy.

NOTHING BUT GOOD will come out of the “new normal” we’re heading into in gas and oil. Even the oil companies will reorganize and (the better ones) will thrive again in this new
environment.

Check out the video link below by Mario Gabelli, namesake of the Gabelli School of Business at Fordham Univ., and an avid oil patch investor. Low cost oil will change the world for the better. It’s a great thing : )

You’re talking Deflation, here, John, and that can hurt as much as Inflation, just a lot quicker. Jobs and pay rates, for example.

JohnFriday, December 12, 2014 at 10:08 pm

Yes Chuck – Yes, you are right about deflation. It’s not only a bad thing – it’s actually worse than inflation because people holding financed assets go underwater as value drops but their indebtedness from having bought them does not. (and this is why Bernanke and others have championed an inflation target for monetary policy – so as not to err on the downside)

BUT deflation is a measure used on the entire economy. Just because you have falling prices in one area does not mean that everything falls in price – which is where the macro danger of inflation lies. Since oil prices are just part of a much larger economic picture, they will help keep price down, but in other areas prices are remaining level or going up. Where the entire national price picture levels off is what counts – and I don’t think we are in any danger of facing deflation in the US at this time. Plenty of sellers have been, and will continue to be more than willing to raise the prices of their products to offset the falling price of oil.

As far as pay rates go, the lower overall business expense are the less pressure there is on them to avoid pay raises. There are other dynamics to pay of course also – including supply and demand in the labor markets. But when businesses have more cash it helps, rather than hurts employment.

Chuck BurtonSaturday, December 13, 2014 at 11:55 am

John, we already have the beginnings of deflation. I saw a chart showing that wages are starting to decline at all levels, especially the higher levels, though the entry level 10% have declined below $10/hr., even if that, or a higher wage is now mandated by law in some places. Lower fuel costs mean lower prices will gradually be passed on to consumers, who have less money to pay for things. BUT, in the meantime, people everywhere will be hurting. This will especially be true in the oil patches, where layoffs will rise to help drillers try to avoid bankruptcy due to reduced income and high debt levels even as they slow or even shut down operations. So will oil patch communities that have issued debt to serve the needs of increased populations. Consumers everywhere have been increasing debt levels in order to meet their wants and needs. We have had a spike down in oil prices. If we have an equally quick spike back up, damage to the economy may be minimized. Anything less would seem to be a huge disaster. Saudi Arabia has essentially decided their future best lies in siding with China, and they have declared economic war on us, whether we like it or not. They seem to be winning for now.

JohnFriday, December 12, 2014 at 10:14 pm

When I say “NOTHING BUT GOOD”, I am speaking from an economic standpoint. I understand there are environmental issues associated with oil production as well and I don’t mean to minimize them. But lower costs of oil and gas will allow energy producers greater flexibility to spend money to protect the environment (as best they can) without breaking the back of energy consumers who ultimately foot the bill. So in that that way also – lower prices is a positive.

Chuck BurtonSaturday, December 13, 2014 at 12:03 pm

Lower income, combined with high debt levels means that producers will have very little to spend on protecting the environment. Deflation hurts us there, too.

mikeFriday, December 12, 2014 at 10:22 pm

“The House passed a $1.1 trillion funding bill late last evening, ensuring that there wouldn’t be a last-minute government shutdown. The tension stemmed from objections to multiple provisions among the liberal wing of the Democratic Party.”

Well, Mr. Larsen you completely bought into the hype. The entire charade was formulated so that the bathtub scum known as “Our Elected Representatives” were, once again, presented with the choice of “voting” for pure crap or “shutting down the government.” As with the Patriot Act and so much more legislation that has been rammed through under pressure, these “bills” (The “cromnibus” or better, the “crony bus”) are laden with disastrous sections that most “elected representatives” have neither read nor understand.

Now…this “liberal wing of the Democratic Party” crap that oozes out of you! I believe that the opposition to the bill in the Senate is co-sponsored by Elizabeth Warren (D-Mass) and David “Diapers” Vitter (R-Louisiana). “Diapers” is about as far from the “liberal wing of the Democratic Party” as you can get. Mike, you are losing it big time. Go back to stringing up Christmas lights; that you can do competently.

DANIEL JOHNSONFriday, December 12, 2014 at 10:54 pm

We keep hearing that those selling us oil don’t like us. Not factual . When was the last time we had problems securing oil . Maybe 30 years ago when the price was half of what it is now and some of your readers now want the Saudies to cut back. We can’t have it both ways. The price of oil is now where it should be . The speculators are finally having minimal impact for once . For every penny gas goes down the public gains a billion dollars in spending power. We should cry for oil investors and Banks ? Please with the Banks paying savers .45% we should be concerned for their bottom line ? For once the public wins one after a long wait .

StuFriday, December 12, 2014 at 11:15 pm

Hi Mike — the dow closed today just a bit above its 50dma. More than likely the dow will break to the downside thru the 50 on Monday and proceed onward to the 200dma during the early part of next week. Then I’m speculating we’ll see a strong santa claus rally starting mid-week or so. Why the sudden weakness in the dow, spy and qqq? Well, I think the u.s. stock markets are taking the fed at its word that it will start raising interest rates next year. And you can thank the overly bullish and robust november jobs report for adding coal to the interest-rate-hike fire. So we have a bit of a chicken game going on here between the fed sticking to its interest-rate-rising script and the stock markets saying “well if that’s the case then I’m getting out while the gettin’s good”. The next thing to have a sizable hit will be the us$, but this probably won’t happen until the 10-yr treasury yield breaks and stays below its 52-week low of 1.86. So what am I buying now? Quality junior miners and silver. Why? Because the u.s. economy imo is not strong enough to handle even the hint of rising rates going forward. So it’s that threat of rising rates that is throwing the markets for a loop. If anything, the fed will be forced to enter into another round of qe. And it’s for these reasons that the miners have been undergoing accumulation at depressed levels of late. The smart money knows that interest rates and the dollar are going to fall and that this is a perfect environment for the precious metal instruments. Gold has always been, and will always be, the world’s real currency of last resort as it has no debt attached to it like all the world’s fiat money. Have a good weekend.

Rafael GuastavinoFriday, December 12, 2014 at 11:34 pm

I’m leery of re-starting the tariff “system” of self-interest marketing; it will only lead to afree-for-all disproportionate blowback from more than just OPEC; but I understand the writter’s point about getting even with predatory price-cutters.

Jeff SiebertFriday, December 12, 2014 at 11:40 pm

Weather in main line news?!?!?!?!? Since when has weather been on national news almost daily? Never that i can remember in my lifetime. Can this mean the news media’s only message is fear and/or there really is no news.

Oil prices falling – expect to hear just as much good as bad news – keep the teeter totter going! To our great economists and one of their fundamental theories – oil is moving from an inelastic to and elastic commodity. Or how about physics in economics – the rubber band theory – when it stretches far it reverts (to its mean) only it swings just as far the other way continuing to build energy until POP it now doubles or triples how far it can stretch! Oil is a commodity that has so many VARIABLES used to assess its VALUE that it will always be the MOST UNPREDICTABLE. The only common element is its 2nd to food – if we have no food we DIE and if we have no oil the world DIES at a slower rate!!!!

The game is asset allocation diversity and know your exits!!! Santa does!

BillyFriday, December 12, 2014 at 11:55 pm

Michael, what we ARE seeing are the STORM CLOUDS brewing for what will be yet another “Perfect Financial Storm” that will AT LEAST rival the financial storm that hit in 2007-2009. NOTHING, I repeat NOTHING, I Repeat NOTHING has been fixed in the global and financial money and banking industry since the Mortgage Backed Security/Credit Default Swap Derivative disaster of the last capital market crash. In fact, this time, because there have been no improvements in the Global Private and Sovereign Debt Crisis, the “correction” to put it as mildly as I can, could be much worse than in 08/09. Instead of sub-prime real estate being the flashpoint/trigger point for the last financial disaster, the next flashpoint/trigger point JUST AS BIG IF NOT BIGGER is the commodity/oil complex meltdown/deflation that is in full swing RIGHT NOW. Not only that, but this COMMODITY MELTDOWN is starting to SPREAD LIKE A WILDFIRE to the VERY VERY LARGE HIGH YIELD (AKA JUNK BOND) Market. I CANNOT EMPHASIS HOW Problematic this will be…THE FACT THAT THE USA “”APPEARS”” to be doing well right now, will HAVE NO BEARING ONCE THE Tsunami reaches our shores as the world is totally connected financially, monetarily, economically like an electric grid. We are now not only seeing the negatives of a crashing oil/energy complex, we are predictably seeing the collapse of the massive High Yield Debt market…Now we know why the banking industry was frantically moving this week to push back the so called “swaps push out rule” from being part of the 2010 Dodd-Frank Finreg bill. Wow, they say history does not repeat, it rhymes!! Boy is that the truth for financial history…Watch out below, here we go again…

andrewSaturday, December 13, 2014 at 12:25 am

The demand for oil has not dropped and there is no oil glut, most likely there is a paper oil transaction manipulation going on

RobertSaturday, December 13, 2014 at 3:21 am

The impacts of oil prices on the US economy are unique because of several factors. Not only do we drive longer distances than those in other countries, but our food travels further, and virtually everything we receive is shipped at least part way by truck. Our mass transit systems are barely adequate in major metropolitan areas, and completely lacking in most of the country. Every penny increase in the price of oil is multiplied by by some factor in every purchase we make, from food to fuel. That single penny increase could cost the consumer many dollars as the cost of everything is increased to pay for the increased cost of shipping. In Europe the cost of fuel is much higher, but they travel by car much shorter distances, and have efficient and cheap mass transit systems everywhere. The impact of increasing fuel prices is much less.

I grew up in Brazil, where in just a few years the country was shifted from cars running on gasoline, to cars running on alcohol. The difference was that they used sugar cane as the basis for making alcohol, a cheap and readily available source. It is a cheap and simple process to change sugar into alcohol. In the United States on the other hand, the chosen source for bio-fuels has been corn, one of our basic food sources. The process of turning corn into alcohol is a much more complicated and expensive one, thus making sure that bio-fuels are not a viable alternative fuel. It also has the side effect of driving up food prices around the world.

The US economy was largely built on cheap fuel, and when the price of fuel goes up, it has a massive stifling effect on the average consumer’s spending. If you look back, the first massive jump in fuel prices was one of the major factors in the start of our current economic problems. The problems then spread as consumer spending was diverted to pay for the increased cost of basic necessities, and they were left with less money for discretionary spending. We have never quite recovered.

larrySaturday, December 13, 2014 at 5:22 am

Hi Mike,
What is your goal for this newsletter? I am paying for in depth stock recommendations rather than news related discussions. Let me know what your plan is and I will act accordingly.
Thanks

AllenSaturday, December 13, 2014 at 8:31 am

The oil situation is simply the market at work and the government should stay out of it.

Jim HonissSaturday, December 13, 2014 at 8:52 am

So maybe a quick buck to be made with the inverse ETFs for the losers.
How about leverage along with that?

Mike SSaturday, December 13, 2014 at 9:51 am

Mike,
There is another perch that no one in your organization wants to talk about as though it’s “The Kings Clothing” and that is the Political Perch… Come January, we are about to get a Republican Majority and in the past, that has been deadly to the U.S. Markets and also for the World markets…. Virtually EVERY Big Stock Market Pullback or Crash in the last 100 years has occurred with Republican Majorities…..1929, 2000 and 2007 ALL happened with Republican Majorities and BOTH of the bottoms in 1932 and 2009 occurred under Democratic Majorities…. I’m betting that it is going to be pretty cold until 2016, when I’d also bet that the voters wake up and turn 2016 into another 1932 and 2009….. In closing I might add that the Republican majorities installed the most Conservative Supreme Courts in the last 100 years by 1929 and 2007….. I find that interesting…. :(

FredSaturday, December 13, 2014 at 8:34 pm

Well, Bill Clinton left office on Jan 20, 2001 after the decline of 2000 had started.

And I will be very surprised if Mr. Obama gets to sneak out of office before this current market hits a terrible decline.

Mike SSunday, December 14, 2014 at 11:43 am

Another Republican majority in Congress… You missed the point……

Chuck BurtonSunday, December 14, 2014 at 3:19 pm

Markets can rise higher for a longer period than analyst think is possible. They can also fall lower for a longer period than seems possible. A rise or fall may also begin even when there seems no reason for it. The best anyone can possibly do is to realize what is happening early enough to get most of the possible profit. That, of course, is the hard part.

Al McNalTuesday, December 16, 2014 at 11:13 am

True because Republicans don’t understand the economy any better than Democrats. They all think only printing more money gets an economy going even while their whole spending facade is failing throughout the world. They don’t see the top of an inflationary mindset of society.

I think that the complexity of terminology in the financial business and the twisted financial vehicles from derivatives to collateralized swaps make banks money but they only twist society’s ability understand what is going on. When after all it is far more simple i.e. a growing business must make money while providing services society is willing to pay for. A stable business can’t be built upon free money. A stable business requires adapting profitably to society’s desires and needs. Any obscuring of what is a financially sound business only contributes to instability.

The world economy is probably the most unstable its ever been due to the twisted financial vehicles, the twisted political processes and the printing of money by every central bank in the world as the only way to compete.

n3angusSaturday, December 13, 2014 at 9:54 am

The Reason for market volatility and why Congress has Contempt for the US Constitutional Rule of Law and We the People that they see as the threat .

GLOBAL THREATS AND CHALLENGES TO THE
UNITED STATES AND ITS INTERESTS ABROAD

Statement For The
Senate Select Committee On Intelligence
5 February 1997

Statement For The
Senate Armed Services Committee On Intelligence
6 February 1997

Mr. Chairman, I am pleased to have the opportunity to provide a Defense Intelligence Agency perspective on the threats and challenges facing the United States and its interests, now and well into the next century. It is important to note at the outset that this testimony directly reflects the baseline threat assessment DIA has provided to the Joint Staff and the Office of the Secretary of Defense in support of the ongoing Quadrennial Defense Review. This review of the global security environment assumes that the United States remains a global power politically, economically, and militarily, and that our country continues its active engagement in world affairs. If either of those assumptions are wrong, then the threat picture depicted here would change significantly. Finally, this analysis presents a global overview of the future in somewhat linear form — that is, we are providing our best estimate, from today’s perspective, under the working premise that current trends and conditions will continue to evolve along discernible lines. We recognize, however, that the future is non-linear, and that what we present here is likely to change. To address that concern, DIA analysts will continue to examine and study alternatives and excursions to each specific condition, event, and circumstance.

THE NEW ORDER…TRANSITION, TURMOIL, AND UNCERTAINTY

“There is nothing more difficult to take in hand, more perilous to conduct or more uncertain in its success, than to take the lead in the introduction of a new order of things.” MACHIAVELLI

The world is in the midst of an extended post-Cold War transition that will last at least another decade. Many factors and forces are at work during this transition and some aspects of it have so far been very positive. The community of democratic states is expanding, the world economy has largely recovered from the decline of the late 80’s and early 90’s, and most experts expect steady, positive global economic growth — on the order of four percent per year — well beyond the next decade. From a national security standpoint, the threats facing the United States have diminished in order of magnitude, and we are unlikely to face a global military challenger on the scale of the former Soviet Union for at least the next two decades. The world is spending in real terms some 30-40 percent less on defense than it did during the height of the Cold War, the “rogue”states are relatively isolated, and at least one — North Korea — is probably terminal.

But despite these and other positive developments, this era of transition remains complex and dangerous. In much of the world, there still exists a potentially explosive mix of social, demographic, economic, and political conditions which run counter to the global trend toward democracy and economic reform. I will highlight the most significant of these.

Demographic Trends

Global population will increase some 20 percent between now and 2010, with 95 percent of that growth occurring in the developing areas that can least afford it. Many of these states will experience the “youth bulge phenomena” (a relatively high percentage of the population between 18 and 25 years of age) which, historically, has been a key factor in instability. At the same time, we are witnessing virtually unchecked urbanization in many developing regions as millions of the world’s poorest people move from rural to urban areas each year. These factors are straining the leadership, infrastructure, and resources of many developing states and regions. Some governments — mostly in the developing world — will be unable to cope with these challenges.

n3angus,
Please tell us what country you reside in and what is your citizenship?

Al McNalTuesday, December 16, 2014 at 10:27 am

Good point Nicholas! All the arguments are relative to what society decides is their safest bet (or riskiest bet). If the crowd believes in deflation and moves their money toward safety then deflation will become the primary concern. All the money printing the Fed has believed in assumes the economy operates in its “standard” fashion. One only needs to look at history that there is no standard fashion because society swings.

Al McNalTuesday, December 16, 2014 at 10:27 am

Excellent!

TaipanSaturday, December 13, 2014 at 11:09 am

In my opinion, government should not and must not interfere in stabilizing the price of oil. For too long oil has been grossly over-priced. Prices are now beginning to reflect the true value and cost of oil.

If banks; big and small along with bond holders are feeling the pinch, and loosing their shirts, then that is the risk they took. When I invest and loose, I get no bail-out and when I win the IRS is there for their share. Let a “so called free economy” be free to flow with the market place.

Finally, If the banks and bond holders get bailout of bad investments, then again me and many other like me that made the right bet will loose out by government interference, only because BIG Business would have gotten another bail-out, even if it is direct cash infusion. So, the lesson here is; big banks and big businesses are not subject to “free markets” flow and they must never loose even when they make a bad gamble, loosing is reserve just the small man or woman?

JamesSunday, December 14, 2014 at 2:27 pm

Mike, what ever happened to the 3% ten year bond that you were predicting by the end of 2014?

Chuck BurtonSunday, December 14, 2014 at 3:02 pm

In Jan., the Fed loses 2 hawks and doubtless gets 2 new doves, and Yellen is a dove. The odds of an interest rate increase plummet. Fed can’t afford the depressionary effects of an increase at this time. Note that China’s rates are higher than U.S., making their bonds more appealing.

Jay VaughnMonday, December 15, 2014 at 9:47 am

Declining oil prices: There will be more going down than just the value of the produced oil and gas commodities – that is the value of the leases. Many of the expensive leases cost north of $10k per acre, and then were drilled horizontally at costs of $10million per well. A lot of the money chasing those investments came from Wall St., hedge funds, MLPs, etc., and most of those had a three or five year sunset at which time it hoped that newly drilled bonanza could be sold off to another round of investors. Oops, how many ways can you spell firesale?

Nicholas FilippiniMonday, December 15, 2014 at 5:46 pm

I am now becoming more and more liquid. Really all the ecomonic talk is so confusing and I don.t really understand it. I have decided to become very liquid and wait to see where the real opportunies pop up. and then buy. Everytime I see a report I become more sure that none of us really understand what we are saying. Hold cash and wait and see. In the future lower prices on energy related stocks with great dividends look really good as a great strategy for investing. Gold and silver will eventually be next

Al McNalTuesday, December 16, 2014 at 10:51 am

As I read through the above statements I saw that many are now bringing up the issue of deflation. One or two years ago there was hardly a mention of deflation. Everyone thought there could only be inflation, there are a lot of reasons for that belief. But just as everyone gets in on one side of a bet a top is reached and the direction turns.

I think we are at the start of deflation now. All these emerging economies certainly haven’t paid off their debts. That is why Europe’s banks are in such trouble and the situation hasn’t been corrected to any significant degree by the slowdown from 2009.

Look at Japan if anyone should have corrected their situation after 20 years of recession it should have been them but they just took out another loan on their country. I saw that as nothing but admission of incorrect direction by their leaders and their society. The last straw before everyone suddenly realizes all this drawing upon debt as a complete failure.

Look at the US we’ve been going deeper and deeper into the same abyss. Sure it seems we have made so me progress since our warped job numbers have increased but we all feel that something is amiss since we see only the top students are getting real jobs and our debt situation is simply no significant amount better than it was in 2009.

I just had dinner with a World Bank manager in Burkina Faso. He admitted that he was simply giving out money to Burkina Faso, attempting to insure that projects were beneficial, but bottom line is he just wanted to move money to them and if projects didn’t pay back or succeed then that was less important than moving money. Is there anyone out there who really thinks this is the way to develop a world economy?

My personal belief is that there is tremendous potential in emerging economies but the world is creating artificial economies then they just dump money on these countries. People aren’t so stupid they can’t see free money is a lot faster than building a company and growing it. It’s essentially the same thing here in the US with government. When we just keep expanding it everyone wants to get on board that money train but these aren’t the people who are going to build a company, provide a service and grow that business for years into the future. That whole artificial economy globallly is now collapsing. No matter how much we spend/print we still can’t produce real jobs where society demands those services. I think it is easy to see these weaknesses in every aspect of the world economy.